Projects with tariff of Rs.4.63 seems like a luxury

A few factors contributing to this trend are low cost of funding; eagerness to enter Indian solar market due to weak markets in other regions, suggests Abhay Raina, Head Solar, Hero Future Energies.

What factors are involved in aggressive tariffs, considering the decline is over 25% since mid-2015?
There has been considerable change in the way we are designing our plants now. Every element is getting optimised and more competent. Decline in module prices have played a vital role. Also, guaranteed off-take contributed to this and gave confidence to the developers to invest in solar parks. We have observed that several foreign players have been bidding aggressively. Few factors contributing to this trend are low cost of funding; eagerness to enter Indian solar market due to weak markets in other regions. Scrapping of few NTPC projects also may have contributed to this drop in tariffs.

Given such drastic tariff decline, have investors adequately calculated and provided risk free funds?
I don't feel any investor would bid aggressively just to win and would have taken all precautions to see that their expectation of Internal Rate of Return (IRR) is sustainable. Few companies that are funded by foreign private equities (PEs) may take a more aggressive stance in future bids also.

Private sector players with long-term PPAs have problems with discoms. Do you think this has been examined?
Till date, solar projects have not faced any such issues barring one such case where retrospective tariff was being suggested but did not hold ground. Today IPP's are looking at all aspects of a tender before bidding as there is no scope for any mistake.

Is evacuation infrastructure - a major cost challenge - being provided by states at zero cost?
Evacuation infra is a challenge, but a very vital part of the entire ecosystem. Even though there are multiple issues related to transmission, it has to be done. Government does not provide evacuation infrastructure. It is responsibility of the developer and entire cost has to be borne by any developer. In case of solar parks, evacuation infra is provided by the solar park developer, but the cost for the same is obtained from every developer setting up projects there.

Land is provided on long-term lease basis by the states at nominal cost, but is there additional cost towards conversion of land to non agriculture?
Land choice is solely on the developers. If land is available on lease every developer will take it blindfolded. Even to get land on lease is time consuming. If it's a solar park, the land is provided by solar park developers by levying lease and other development charges on the developers who win the projects. Conversion charges are standardised as per the state rules and regulation.

Do bidders consider O&M costs (in per MW per annum terms)?
Yes bidders consider O&M cost. O&M is one of the major considerations when arriving at tariffs, due to its nature of yearly escalation at 5.62 per cent. No one can neglect this cost component before bidding or during risk analysis (RA).

As per our understanding some bidders have arranged foreign debt at around/below 9% interest (including hedging cost). However, hedging is not for the entire duration of the PPA and can go up to 3-5 years. Your assessment on it.

Hedging has its pros and cons, sometimes you win, sometimes you fail. It depends on an individual's capability of assessing the risk. Most of the times, hedging has been beneficial so companies have opted for this option very frequently. The cost is based on market volatility and how one foresees future trends. Even if hedging is for three or five years, if the purpose is fulfilled, there is no better way to curb market fluctuations and that too when 60 per cent of the cost is in dollars.

Lastly, according to you how many of the low-tariff projects have really come up on stream?
Till date projects that were won at low tariffs at the time when they were considered low tariff, have been commissioned and now considering today's scenario, projects with tariff of Rs 4.63 seems like a luxury.